The U.S. Department of the Treasury and the Department of Housing released the much-anticipated housing finance reform plan to reduce the government’s role in housing and end government control of both Fannie Mae and Freddie Mac. The plan, which was released September 5, 2019, would gradually privatize the GSEs (government-sponsored enterprises) and retain a government backstop. While aspects of the proposal have been favorably received by industry groups for encouraging more competition with the GSEs, other groups, including Congressional Democrats, have expressed concerns that the proposals go too far in eliminating affordable housing for individuals that need the most assistance. Specifically, the proposal would eliminate the lower income lending mandate and instead purport to replace it with increased private competition.
Democrats and Republicans have been at odds on how to best overhaul the system, and that is reflected in the plan. It includes administrative reform recommendations, which would allow for incremental changes to housing policy as Congress works to find bipartisan agreement on legislation needed to overhaul other aspects of the system. While the Senate Banking Committee was quick to hold a hearing on the housing plan, it did not signal the potential for compromise. Instead, it highlighted the significant policy differences between the Senate Republicans and Democrats. The House Financial Services Committee has also announced the intention to hold its own hearing, and we expect an even more polarized debate there. We anticipate additional activity (legislative and administrative) over the remainder of this year. Based on the early returns on the plan, it is highly unlikely Congress will reach consensus on the larger issues this year.